Archives for May 2013

Major entertainment genre that rely on animals to perform are routinely scrutinized by animal-welfare groups. The latter’s salutary concerns can segue into an intensive effort to discredit and possibly even abolish an entire sport or industry.

Horse racing has sometimes been in the spotlight, as in the Eight Belles fatality in the 2008 Kentucky Derby and the ensuing unsubstantiated allegations about the causes. This year during a few days Derby week, People for the Ethical Treatment of Animals had a mobile billboard on the streets near Churchill Downs to blast the use of therapeutic medication in racehorses.

A December 2012 settlement between Feld Entertainment, owner of the venerable Ringling Bros. and Barnum & Bailey Circus, and the American Society for the Prevention of Cruelty to Animals demonstrated that animal-welfare groups can pay a hefty price for vendettas.

In 2000, Feld Entertainment was sued by five animal-welfare organizations, including the ASPCA, for purportedly mistreating circus elephants and thereby violating the Endangered Species Act. Another party to the lawsuit was a former Ringling Bros. elephant caretaker, known in circus vernacular as a “barn man.”

The lawsuit against Feld Entertainment was ultimately dismissed by a federal appellate court. However, the barn man’s grievance was allowed to proceed using the rationale that he may have been emotionally injured by Ringling Bros.’ treatment of the elephants in his care.

A trial was held in 2009 and a federal district court judge ruled for Feld Entertainment, labeling the former caretaker a “paid plaintiff,” whose only source of income for the previous eight years came from the $190,000 disbursed to him by animal-welfare organizations and media companies covering the case.

In 2007, in a separate lawsuit, Feld Entertainment had retaliated by countersuing all of the plaintiffs for filing specious litigation that breached federal racketeering law.

The ASPCA settled with Feld Entertainment in December 2012 by agreeing to pay the circus company $9.3 million, without admitting guilt. In return, the ASPCA was removed from the Feld Entertainment lawsuit, which proceeded against the remaining defendants. Feld Entertainment reportedly has spent some $20 million on legal costs.

Kenneth Feld commented: “Animal activists have been attacking our family, our company, and our employees for decades because they oppose animals in circuses. This settlement is a vindication … for the dedicated men and women who spend their lives working and caring for all the animals with Ringling Bros.”

The Feld Entertainment chronicle implies that an animal-welfare group that chooses to litigate against a company such as a circus or racetrack does so with considerable financial risk to itself.

Copyright © 2013 The Blood-Horse. Used with permission.

“It’s tough to make predictions, especially about the future.” Yogi Berra

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The late Harvard economist John Kenneth Galbraith opined that “the only function of economic forecasting is to make astrology look respectable.” Yet equine businesses must forecast to develop operating plans.

The long-term accuracy of most economic forecasts is mediocre. For example, The Blue Chip Economic Indicators is an oft-quoted prediction of where the U. S. economy is headed, based on a survey of about 50 prominent economists. Barron’s characterizes the results: “Its track record is not encouraging.”

Similarly, hedge-fund managers charge very high fees to affluent clients, ostensibly to deliver alpha by predicting and selecting the best investments to make. But a popular measure of hedge-fund returns, the HFRX, reveals that the S& P 500 has topped average hedge-fund returns for nine of the past ten years. In 2012, nearly 9 of 10 hedge-fund managers lagged the S&P 500, which returned 16% versus 2.69% for hedge funds.

Agreement among forecasters is apt to reflect a herding bias. A case in point is pari-mutuel wagering on horse racing, where the favorite wins only about one-third of the time. Though consensus forecasts tend to be better than the vast majority of individual predictions, they are frequently not accurate enough to be helpful.

Forecasters are particularly susceptible to herding in situations where they have a common interest that may engender and reinforce a confirmation bias. Being in physical proximity—such as in Lexington or Ocala–can magnify the effect. Some investment companies purposely locate away from Wall Street for this reason.

Ray Dalio, the famed founder of the investment firm Bridgewater Associates, says: “The consensus is often wrong, so I have to be an independent thinker. To make any money, you have to be right when they’re wrong.”

Statistician Nate Silver, author of a 2012 book on forecasting advises: “…seek out forecasts that couch their predictions in percentage or probabilistic terms. They are a more honest representation of the limits of our predictive abilities.”

Initiate the forecasting task for a horse-racing business by representing several plausible scenarios (at least include best, worst, and most likely) and assigning probabilities to them. Then, as time goes by and further information becomes available about business conditions, revise both the probabilities and the appropriate tactical responses. This hedging of bets militates against a major cause of errant forecasting—overconfidence in the prospects for a single outcome.

Copyright © 2013 the Blood-Horse. Used with permission.

In a recent post on Horse Racing Business (“Rebuttal to Bill Dwyre’s Take on Hollywood Park,” May 16, 2013), I challenged the assertion in Mr. Dwyre’s column in the Los Angeles Times (May 13, 2013) that Hollywood Park’s planned closing is a sign that horse racing is in need of a hospice. My view is that this is not the case at all and wrote: “A more plausible and simple explanation for the closure of Hollywood Park is that it is following an established pattern of industrialization.”

Articles that have recently been published concerning the future of the Hollywood Park site corroborate this view: For instance, one said: “The last race at the Inglewood track will be held in December, and then in January work will finally begin on the enormous project to replace the the track with a renovated Hollywood Park casino, shopping center, 300-room hotel, office space, parks, 2,995 residences (mostly single-family houses and townhouses), and two lakes. Several new streets will also need to be built across the 238-acre site.” This is the largest building project currently underway in the Los Angeles area.

The hard facts reflect that the closing of Hollywood Park has nothing to do with the health of horse racing nationally or globally, but rather, is a special circumstance of economic development. Mr. Dwyre erroneously projected from a sample size of one.

Copyright © 2013 Horse Racing Business